Article: Property Investment

People Movements Move Property Prices with Frank NewmanPeople Movements Move Property Prices with Frank Newman

In the year to the end of July, a record 72,400 more people arrived to live in New Zealand than left.  That represents an annual population increase of about 1.5%. Few would dispute that this has had a significant impact on house prices in recent years.

There are essentially four groups of immigrants: international students, those arriving on work visas, those arriving for family reunification, and kiwi’s returning from overseas. It’s the latter that is having the most influence on the numbers. Back in the year to May 2012, 22,400 returned home, while 61,800 departed, leaving a net loss of 39,400. In the May 2016 year, the net annual loss had reduced to 3,500, as 30,700 New Zealanders arrived home and only 34,200 departed.

Those numbers reflect the fact that the grass is no longer greener on the other side of the Tasman. Australia is not as attractive as it was, particularly since the lure of making big money in the mining sector has disappeared.

Immigration flows are important because it affects housing demand and building. This was quantified in research by MOTU, which showed a strong correlation between high immigration and high house prices. They say a one percent increase in population from migration at the national level is associated with a 12.6 percent increase in house prices.

When they drilled down into the figures and looked at the effect different types of immigration had, they found the most significant effect was New Zealanders returning from overseas to live. This may be because they are likely to be more certain about where they want to settle, and are returning with cash in their pockets.

While MOTU’s correlation between immigration and house prices seems on the high side, it nevertheless points to the influence the net migration number has on house prices. This is something homeowners and investors in particular need to be mindful of. Should our economy slow down or should overseas markets like Australia regain their appeal as a place to work, then the population inflow that is driving house and rental prices higher may well turn into a net outflow as it was between 1998 and 2001 and in 2012 at the peak of the Aussie mining boom (see graph).

Clearly net migration turned around in 2012 and has gained pace ever since. Most economic commentators are expecting the New Zealand economy to remain strong relative to our main trading partners, and few are picking a recovery in the Australian mining sector anytime soon. 

Despite this there are indications that migration numbers are starting to wane due to the tightening of the immigrant criteria. In August the net inflow was down from 5800 in July to 5490, and July was down on the month earlier. While the changes are relatively minor in the overall scheme of things, it does suggest a change in momentum.

Part of the reason for the slow-down is an increase in departures of those here on temporary work and student visas. Those numbers surged in 2013 but are now starting to reverse as entry visas come towards expiry.

A further factor is the social and political influence. In June UMR Research published a revealing survey about New Zealanders’ attitudes to immigration. Opinion was divided along political lines. Forty-three percent of National voters thought immigration makes New Zealand a better place, as did 41 percent of Labour voters, 55 percent of Green voters, but only 19 percent of NZ First voters. The main concerns were that our roading and housing infrastructure was not coping with the high numbers: 84 percent of NZ First voters said housing supply was not coping, as did 79 percent of the Greens supporters, 75 percent of Labour, and 59 percent of National supporters.

While National has not promised any further changes to immigration policy, the numbers of immigrants coming into New Zealand would fall under Labour, Greens, NZ First coalition. NZ First would cut net migration to 10,000 people a year, while Labour would reduce the number to between 20,000 and 30,000 a year. It remains to be seen how much priority NZ First will give to immigration during its coalition negotiations.

While external migration numbers are critical to property prices generally, and Auckland in particular, there is also significant influence from the internal migration - the movement of people within New Zealand. In general terms, there is a long-term shift to the top half of the North Island. Significant areas attracting residents include North Auckland (particularly around Albany and Orewa), west Auckland, Hamilton, and the Bay of Plenty. All of these areas have experienced significant population growth and property value increases in recent years, which is expected to continue in the next 10 years.

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)

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